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Business accepts Chancellor’s deal on higher wages for lower taxes – IoD snap budget reaction

09 Jul 2015

Responding to the Budget delivered by the Chancellor today, Simon Walker, Director General of the Institute of Directors, said:

“In today’s Budget, George Osborne has offered business a new deal on employment. Introducing a national living wage at a significantly higher level than the minimum wage was a dramatic announcement, but in return, companies have been provided with a cut to corporation tax and an increase in the employment allowance. We should not understate the boldness of this move, and many businesses will have been taken by surprise, but the IoD accepts that after several years of slow wage rises, now is the time for companies to increase pay.

“9 in 10 IoD members already pay even their most junior staff the living wage, and will accept this deal from the Chancellor.

The most eye-catching element of the Budget for the business community is undoubtedly the introduction of a new Living Wage, but there were many other measures announced today that will affect companies.

IoD policy experts respond below to some of the most important elements for its members

The economy and the public finances

James Sproule, chief economist at the IoD -

“Reducing the deficit is a high priority for businesses. 85% of IoD members support the Chancellor’s aim to run a budget surplus by the end of the parliament, and they back the plans to do this by cutting government spending and clamping down on tax avoidance, rather than raising taxes. The economy has been growing impressively for more than two years, but we do have concerns that the economic forecasts outlined today are based on a particularly benign set of assumptions.

“History suggests that the world economy seldom stays tranquil for long, so while we welcome the target of running a budget surplus, the Chancellor’s margin for error is slight. His plans rely on low debt servicing payments, themselves dependent upon the continuation of historically low interest rates.”

Higher Rate Tax Threshold

Stephen Herring, head of taxation - 

“For too long, wage growth and inflation have meant those on modest incomes have been sucked into tax bands which were not originally designed for them through ‘fiscal drag’. We fully support the Chancellor in raising the level at which individuals start paying both the 20p and 40p rates of tax. However, we would have liked to have seen both a larger increase this year and more detail on how the chancellor’s plans to reach a £12,500 personal allowance and a £50,000 higher rate threshold are to be delivered.

“The increase in the higher rate threshold announced by the Chancellor for next year does not even keep track with wage growth, meaning even more people will be dragged in. Plenty of benefits, including the new single-tier state pension, have mechanisms in place to ensure that the payments increase every year, not just at the whim of the Chancellor. It should be no different for tax bands. That is why we are calling for the introduction of a ‘triple lock’ for income tax, where thresholds rise each year by the highest of inflation, earnings or 2.5 per cent.”

The Additional Tax Rate (45%)

Stephen Herring -

“Despite the political outcry which would inevitably have followed, cutting the 45p tax rate to 40p would have been the right move by the Chancellor. There are considerable doubts about how much money the additional tax rate raises, and lowering it will help the UK attract high-earning, high-tax paying individuals to come and live in Britain. For twenty years both major parties agreed that 40p should be the highest rate of income tax. Hopefully today’s decision will not prevent a return to that sensible consensus.”

Inheritance Tax

Stephen Herring –

“IoD members continue to prioritise reform to inheritance tax and it is encouraging to see the Chancellor move to implement the manifesto commitment to raise the threshold. However, it is exasperating to see the system complicated further by needlessly linking exemptions to property ownership and complex rules on marital transfers. A simple threshold of £1 million for each individual would have been a much better option.”

Corporation Tax & Annual Investment Allowance

Stephen Herring –

“The Chancellor’s decision to cut corporation tax is a rabbit out of the hat which will be cheered by business. A headline rate of 18 per cent will cement the UK’s position as an attractive place for entrepreneurs to start up and businesses to invest in.”

“A fixed Annual Investment Allowance of £200,000 is far too low, and will not encourage medium-sized business to invest. The current temporary allowance is £500,000, and many businesses were hoping it would have been raised even further. A £200,000 fixed limit is not enough to boost productivity by encouraging firms to invest in plant and machinery.”

Apprenticeship levy

Seamus Nevin, head of employment and skill policy -

“The UK needs to invest more in education and training if we are to address the challenges of the skills shortage affecting our employers and economy. Businesses understand that they have a role to play.

“Though the details of the size and scope of the apprenticeship levy have yet to be made clear, the Chancellor has rightly said that those who train apprentices will get back more than they pay in. The scheme will therefore have greater reward for those companies who invest significantly in training their workforce and that should be encouraged.”

Infrastructure

Dan Lewis, senior infrastructure policy adviser -

“The Government is right to push for the Northern Powerhouse. Increasing transport links within urban areas is the priority for the North, which is why the debacle at Network Rail is so worrying. Its crippling level of debt must have played a part in the delay to the vital electrification of the TransPennine rail line.”

“We welcome the Chancellor’s decision to set aside revenue from vehicle excise duty for road building. Investment in roads delivers greater returns that many other forms of transport infrastructure.”

Investment in start-ups

Jimmy McLoughlin, Deputy Director of Policy - 

“Britain is currently undergoing a start-up revolution, with more people setting up businesses than ever before. It is encouraging that the Budget included announcements which look to safeguard and strengthen the investment of these start-up companies

“Crowdfunding has the potential to be the biggest revolution in finance of the 21st Century, so we welcome the consultation on including it in the ISA allowance.

“It is critical to the future of the UK that everyone has the ability to share in the start-up revolution.  Just 38% of IoD members are aware of tax breaks such as the Seed Enterprise Investment Scheme, indicating that the Government can do far more to promote these schemes.”


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